In high-risk situations, financial institutions and other “obliged entities” are required to conduct Enhanced Due Diligence (EDD) measures to ensure that the money laundering and terrorist financing (ML/TF) risk is appropriately mitigated.
An essential element of EDD is ascertaining the source of funds and source of wealth.
The source of funds refers to the origin of funds involved in a specific transaction or a business relationship.
The source of wealth refers to the origin of the customer’s total wealth.
When ascertaining the source of funds or wealth, the obliged entity needs to be able to answer the following questions:
🔷 Can the customer’s or the beneficial owner’s source of funds or source of wealth be easily explained through occupation, salary, inheritance, or investments?
🔷 Is the customer’s source of funds or wealth consistent with the client’s background?
🔷 Does the explanation makes sense?
When ascertaining the source of funds and wealth, an obliged entity must be satisfied that it does not handle the proceeds of corruption or other criminal activity.
The source of funds and source of wealth must be identified based on reliable and independent data, documents, or information.
Such documents can include, among others:
✅ VAT and income tax returns
✅ Copies of audited accounts
✅ Payslips or written confirmation from the employer
✅ Public deeds
✅ Original or certified copy of the contract of sale of a company or investments
✅ Written confirmation by a lawyer or solicitor
✅ Original or certified copy of a will or grant of probate
✅ Written confirmation of inheritance signed by a lawyer, solicitor, trustee, or executor
✅ Internet search of a company registry to confirm the sale
✅ Any other documents that justify the source of funds or wealth
✅ Others that can support the customer’s funds/wealth.
#cdd #edd #aml #amlcft
